A transsexual who moved to Britain because she thought it would be more tolerant than her US midwest home is bringing what is thought to be the biggest discrimination claim to be launched over a sex change.

Jessica Bussert, formerly Josh, is seeking £500,000 from Hitachi Data Systems, who demoted her from her high-level IT job after she had facial and breast surgery. Ms Bussert, who transferred from the American branch of the technology firm two years ago, is also pursuing $3.6m (£1.93m) damages against the company in a parallel claim in the US.

Discrimination claims on the basis of gender identity are rare, but lawyers say the size of the claim by Ms Bussert, who earned £88,000 last year, is almost certainly a record. The case is expected to go to an employment tribunal within three months.

Since a ruling of the European court of justice 10 years ago, it has been unlawful to discriminate against transsexuals in the workplace. The Sex Discrimination (Gender Reassignment) Regulations 1999 make it clear that this covers employees who intend to undergo gender reassignment, are going through the process or have done so in the past. There is no cap on the damages that tribunals can award for discrimination cases.

For Josh Bussert and his wife, Sharon, their former home in Indiana was "a great place to bring up kids". They lived with two of Mr Bussert's three children from his first marriage and two girls the couple adopted from Haiti 12 years ago. But when he decided to change his gender, small-town America did not seem like the right place to be.

"About 45 minutes away from where I lived in Indiana, about three months before I left, a 19-year-old transsexual woman and a friend of hers were brutally murdered and, because that wasn't good enough, their bodies were set on fire. That's the kind of environment that we were worried about," Jessica Bussert says.

Josh Bussert had started working for Hitachi in the US in January 2001. At the end of 2003 he was diagnosed with gender dysphoria, a condition in which an individual's biological sex is at odds with his or her psychological gender. Mr Bussert, who remembers wanting to be a girl from the age of four, was in effect a woman in a man's body.

That month he applied for a transfer to the UK branch of the company, covering Europe, the Middle East and Africa. The Busserts, who are still a couple and say they are closer than ever, decided to move to London, which they saw as a more accepting and tolerant environment.

"I interviewed for a job with an individual that would have been a wonderful supervisor, very liberal, very open-minded. He later told me that I had the job before I even came for an in-person interview," says Jessica Bussert, 41.

In April 2004 the family made the move, renting a house in west London. But the man who had conducted the interview and would have been Bussert's boss moved on soon after.

A few months before beginning the new job Josh had begun the transition that would transform him into Jessica, starting with hormone therapy, electrolysis to remove facial and body hair, and growing longer hair. Outside the workplace he was Jessica, but at work the right moment had not yet arrived to go public.

Relations with his new boss, Steve Larkin, were good at first. In July 2004 during a business trip to Hamburg, which Mr and Mrs Bussert had gone on as a couple, a colleague made a comment about the length of his hair. He replied, apparently joking but testing the water, "Oh, I'm planning on having a sex change."

Most of his co-workers laughed but, as the Busserts now recall, Mr Larkin replied: "Don't do that to me, Josh. I had to work in an office with someone who did that once and it was weird." Mr Bussert passed it off as a joke, and Mr Larkin said: "That's good because it would just be too strange. Don't ever do that to me."

By October 2004 the physical changes were creating pressure to reveal the truth, she says. She broached the subject with Mr Larkin light-heartedly, but "he made it quite clear that he did not want any of 'those people' working for him. I quickly passed it off as a joke but he was becoming suspicious."

Two work assignments followed, in Spain and the Netherlands, where she says Mr Larkin went over her head to make substantial changes to business agreements she had reached, destroying her credibility with the sales team.

She was experiencing substantial stress and decided to tell the human resources director, Janet Musgrave, who initially seemed supportive. But after Ms Bussert returned from having facial feminisation and breast surgery in the US - she is yet to have genital surgery - she was effectively demoted, she says.

Although her salary remained the same, she no longer reported to Mr Larkin but to Nick Lewis, who had been hired as her equal a few months earlier. She says neither Mr Larkin nor Ms Musgrave told her of the demotion: she learned of it during a "totally humiliating" presentation given by Mr Lewis.

Ms Bussert says she was given administrative tasks normally performed by secretaries, and that her representations to senior management were dismissed. Two days after filing her discrimination claim last September, she says she had an employee appraisal with Mr Larkin at which he delivered "the most devastating employee evaluation of my entire professional career". After that she went on sick leave suffering from "workplace stress causing clinical depression, together with anxiety and panic disorder", she says.

The company stopped paying her salary in February, and the Busserts are living on their savings while she looks for another high-level IT job.

A spokeswoman for Hitachi UK said: "This is subject to employment tribunal proceedings and we don't think it's appropriate to comment, other than to say that we deny those allegations and will be defending them to the full extent."